Slide in U.S. gasoline prices ends amid refinery woes in Gulf
The slide in retail gasoline that U.S. drivers typically see this time of year has been cut short by a series of refinery breakdowns that have boosted wholesale prices to the highest level since July.
Gasoline in the Gulf Coast, home to more than half of U.S. refining capacity, has surged 20 cents a gallon the past two weeks. October-delivery futures in New York, the benchmark grade for gasoline sold across the country, settled yesterday at the highest this month. Retail prices, which tend to lag behind moves in the spot and futures markets, have risen 0.7 cent in three days, after falling every day since Sept. 5.
Gasoline is climbing as refineries in eastern Canada and Texas shut units for unscheduled repairs at a time when other plants are conducting seasonal maintenance. Hedge funds and other speculators were the most bearish in four years as of Sept. 16, adding fuel to the rally.
"Clearly the tightness is a result of significant FCC works, largely unplanned," Amrita Sen, the chief oil analyst at Energy Aspects Ltd., a consultant in London, said of fuel- producing refinery units. "If you combine that with the number of shorts in the gasoline market, which were very high as well, it means that you're seeing a very strong rally."
October gasoline gained 5.42 cents, or 2 percent, to $2.718 a gallon on the New York Mercantile Exchange yesterday. The spread between first- and second-month contracts rose 2.67 cents to 17.82 cents a gallon, the biggest gap in almost two years.
Retail gasoline strengthened on Sept. 24 for a third day, up 0.1 cent at $3.345 a gallon, according to Heathrow, Florida- based AAA.
Gasoline supplies in the Mid-Atlantic region, which includes New York, have dropped for three weeks to 10 percent below a year ago, as Irving Oil Corp. and North Atlantic Refining Ltd. cut production at refineries in eastern Canada.
Irving's Saint John plant in New Brunswick, which ships about half of its fuel output to the U.S. northeast, shut an alkylation unit on Sept. 23, Genscape Inc. reported yesterday. A crude unit and fluid catalytic cracker are also shut.
North Atlantic's Come By Chance refinery in Newfoundland closed units during the first week of September for a month of maintenance.
October futures were already at a premium to contracts for later delivery at the beginning of September as the market transitioned from summer-blend to winter-blend gasoline. On Sept. 15, the Environmental Protection Agency allows retailers to start selling winter gasoline, which can have higher higher vapor pressure and therefore contain more low-cost butane.
"By nature the market is backwardated, so there are lean inventories as it is," said Eric Rosenfeldt, the vice president of supply and trading at Papco Inc. in Virginia Beach, Virginia. "You add to that Irving and Come by Chance, whether because of turnarounds or other issues, you take that supply out of the market, and you've got problems."
Money managers were net-long 8,277 futures and options contracts as of Sept. 16, the fewest since September 2010, data from the Commodity Futures Trading Commission show.
Gulf Coast conventional gasoline rose by 3 cents to 16 cents above Nymex futures yesterday, the most since August 2012. Reformulated gasoline in New York increased 2.38 cents to 9.63 cents a gallon above futures.
Fluid catalytic cracking capacity off-line in Texas is at the highest level for this time of year since at least 2011, data compiled by Bloomberg show. The units break down vacuum gasoil to produce fuel including gasoline and diesel.
Companies including Alon USA Energy Inc., Exxon Mobil Corp. and Citgo Petroleum Corp. have reported equipment failures just as plants from Marathon Petroleum Corp.'s Galveston Bay complex to Phillips 66's Sweeny site shut units for scheduled repairs.
"The physical markets are relatively tight," said Phil Flynn, a senior market analyst at Price Futures Group in Chicago, said by phone. "We had four glitches just yesterday. It's set off a bit of a panic."